CONTENTS

Chapter 1:
Introduction 1.1 Introduction to Pharma Industry. 1.2 Company Profile

Chapter 2:
2.1 Scope 2.2 Definitions (Sourcing Terms) 2.3 Importance of Rate Contract Agreement

Chapter 3:
3.1 Purchasing Procedure for Local materials 3.2 Purchase Requisition 3.3 Enquiries and Quotation 3.4 Negotiation 3.5 Purchase Order Finalization 3.6 Purchasing Terms and Conditions

Chapter 4:
4.1 SAP Procedures and Screen Formats

Chapter 5:
Recommendations

Chapter 6:
Bibliography.

ACKNOWLEDGEMENT
I take this opportunity to express my profound gratitude and deep regards to my guide P. Janarthana Reddy Sr. Manager-SCM, Dr. Reddy Laboratories Ltd, Hyderabad for his exemplary guidance, monitoring and constant encouragement throughout the course of this dissertation work. Sincere appreciation is extended to Jagan Mohan, Venugopal, Srinivas Rao, Srinivasa Reddy and Jhansi Laxmi, Dr.Reddy Laboratories Ltd for their immense help during the course of this work. In those moment when things used to turn dark their presence had a soothing effect. I am grateful to Prof. C.V. Kumar, ICFAI, for providing me with the timely help in Completion of my project. My several well-wishers helped me directly or indirectly; I virtually fall short of words to express my gratefulness to them. Therefore I am leaving this acknowledgement incomplete..in their reminiscence.

SABA KAUSAR

DRLs STRATEGIC GOALS

CHAPTER 2
DEFINITION
Purchasing may be defined as The process by which a company contracts with Material vendors to obtain the goods and services required to fulfill its business objectives in the most timely and cost-effective manner. Purchasing is not only about reducing the cost of materials and services, but higher reliability on delivery, enhanced quality, faster market launch and total compliance with regulatory requirements. Considering the present business challenges and focus on Quality Management, customer satisfaction, global competition, increased cost of ownership of materials and services, there has been a need to create such type of environment where Purchasing becomes Supply Management, which defines Operational excellence and a strategic process. Few companies today can allow Purchasing to be managed in isolation from the other elements of their overall business systems. Greater integration, stronger cross-functional relations, and more top management involvement are all necessary, from system support to top management style, will ultimately need to adapt to these requirement. Peter Kraljic, McKinsey & Co.

SCOPE
Purchase covers all the Sourcing activities of materials and products both Locally and Globally which comprises of following materials. Raw Materials Engineering Materials o Capital items o Maintenance, Repair and Operational (MRO) Items Packing Materials Project related Purchases Sales Promotion Materials Finished Products Lab Chemicals and miscellaneous materials

SOURCING TERMS
(Purchasing terms and conditions)

EXW- EX.WORKS: The buyer collects the material at Vendors place and buyer is responsible for all carriage thereafter. Risk of the material transfer will be with the buyer. FOR Destination: Free On Rail/Road up to the destination. Vendor delivers the goods at agreed buyers place. Risk of the material transfer will be with the vendor. FCA: Free Carrier At. The vendor delivers the goods up to the buyers specified carrier (as agreed by both parties). The material transfer responsibility will be with the buyer from the carriers point till the destination. FOB: Free On Board. Vendor delivers the goods up to shippers dock and the material transfer risk will be with the buyer from the shipping point to buyers destination. FD: Free Delivery at buyer works. FDD: Door delivery up to buyer works but freight has to be paid by the buyer. CIF: Cost, Insurance and Freight. Vendor takes the responsibility of delivery and CIF of goods up to agreed buyers Port of Receipt. CPT: Carriage Paid To. Vendor pays the freight charges up to the agreed destination. CIP: Carriage and Insurance Paid To. Vendor will pay the freight and insurance charges up to the agreed destination. DDU: Delivered Duty Unpaid. DDP: Delivered Duty Paid. DES: Delivered Ex Ship. Demurrage: Charges assessed by carriers to the buyer who fails to unload and return the vehicle or containers within the agreed time. RFQ: Request For Quotation.

Importance of Rate Contract

Spurred by the increase in R&D activities, the pharmaceutical industry in the country is now going about doing one more business that of signing Rate Contract Agreements with suppliers of laboratory chemicals, reagents and other materials. The number of Rate Contract Agreements, RCA as is known in the industry parlance, between pharmaceutical companies and suppliers has increased since the last two years. Reputed companies such as Ranbaxy, Dr. Reddy's, Aurobindo Pharma, to name a few have distinguished themselves with such RCAs that have protected them from vagaries of delays or non-delivery of chemicals and other materials on time besides adding to their bottomline by way of reduced expenditure. Interestingly, some of the government organisations such as the Indian Institute of Chemical Technology (IICT), Hyderabad , and the Council of Scientific and Industrial Research (CSIR) have also gone in for RCA. The RCAs are mostly signed on a yearly basis, fixed rates are agreed upon. Prices are thus fixed and this helps companies escape from varying prices which affect their bottomline on account of increased expenditure. Beneficiaries of the RCA business for chemicals, etc. have been foreign suppliers. Companies like Aldrich - Sigma, Lancaster to name a few have created a market for RCA in the country which has helped ensure Indian pharmaceutical industry to get the necessary laboratory chemicals and reagents on time and save on cost. Apart from committing to delivery on time and competitive rates, the reason for preferring foreign suppliers to Indian suppliers is the range of chemicals and reagents. Aldrich-Sigma reportedly has an array of 25,000 laboratory chemicals and reagents. Comparing this, all Indian suppliers put together can only supply not more than 1,300 1,500 chemicals and reagents. The opposite is for the purchase of engineering materials where it is more feasible to form Rate Contracts with local or Indian suppliers, since they are much larger in quantity and specifications are same for both local and foreign suppliers."RCA does away with the hassles of increased expenditure apart from the worry of supply. What we have noticed is that the RCA also ensures that the suppliers keep up on time in order to further relationship. It is win-win situation for the company and the supplier," a source in Dr. Reddy's Laboratories told Chronicle Pharmabiz.

CHAPTER 3

Purchasing Procedures for Local Material

The annual materials requirement plan, as per the budget, is the source for all procurement plans by purchase department. The monthly materials requirement plan issued by production planning department is the approved purchase requisition for the materials delivery and procurement on monthto-month basis. All other materials are procured based on approved purchase requisition only.

Purchase Requisition:
All materials other than MRP materials are requested through Purchase Requisition in the Lotus Notes. The requisition has to be approved by all concerned approving authorities Any indent received with improper or inadequate data by buyer is subjected for discussion with the concerned indenter for necessary rectification. It is the responsibility of the Purchase department to see that any purchase against to the indent is within the budgeted amount. In case of any deviation the same is informed to the indenter for necessary rectification and approved by the concerned authorities. The Purchase department ensures that there is proper response to the indenter on the requisition execution and expected delivery date, which is informed through Lotus Notes periodically. For all the materials that can be categorized for annual rate contract orders, it is ensured that the requisitions are raised for annual quantity during April-May every year and the department has to be in the position to complete the negotiations and release Purchase Orders (Scheduling agreements) to have proper supply all year round.

Enquiry and Quotation:

On receipt of approved Purchase Requisition enquiries are floated preferably with approved vendors. Incase approved vendors are not available for that particular material, then necessary process to approve the vendor is followed to complete the transaction. Then required RFQ is prepared in SAP System. Minimum number of quotations are called for every material to get the best price for the material

Quotation Comparison statement is then prepared with final negotiated price in SAP and the same is approved by the concerned authority.

Negotiation:
Based on the value of material required procurement or negotiation strategies are prepared and recorded for reference before calling the vendors. All negotiations with the vendors are preferably done in person. Negotiation details are recorded properly and attached to the purchase order for future reference. All terms and conditions are considered during negotiations, as applicable to that particular material (as per Purchase Terms and Conditions). It is essential to capture the Total cost of ownership for the material in the negotiated document to take suitable decisions.

Purchase Order Finalization:

A quotation comparison is prepared with final prices, all terms and conditions and necessary justification is given for the procurement decision. Before preparing the purchase order, procurement decision approval is taken from all the approving authorities, mostly for high value orders or high unit rate orders. Then all the relevant details are entered in the SAP PO System It is ensured that the vendors details, payment terms, unit of measurement, etc. are entered in the system properly as agreed with supplier. Incase of any deviation because of Masters in SAP, rectification is done immediately in the Master, and then Purchase Order is released. The released purchase order is automatically available to the vendor through www.vikreta2drl.com. Incase vendor is not connected with VIKRETA, a printed PO is sent for necessary execution.

Purchasing Terms and Conditions:

Material specification and acceptance by vendor It is ensured that the vendor is in good understanding of the materials specification which has to be acknowledged along with the purchase order as acceptance. Incase the vendor comes forward with better specifications, then purchase executive informs the same to the indenter or the concerned department and discusses on the possibility of incorporating the improvements. After the release of the purchase order no deviation is allowed either by the vendor or the purchase department. For any necessary changes to

be made thereafter, approval of the concerned authority and PO approving authority is taken. Material Unit Price Material unit price most important in the purchase transaction. It is not added with any other taxes for the sake of convenience while negotiating or preparing the purchase order. Material unit price is not usually allowed to change once approved and any changes in the unit price are treated as new transaction. Excise Duty, Sales Tax, Entry tax, other government regulatory requirements All the necessary taxes and duties applicable for different materials are discussed with the vendors and authenticity of the vendor regarding tax registrations and other government regulations is done. Vendors who are having tax benefits/registrations and are willing to share it with DRL are preferred. Packaging and Forwarding Charges/ Transportation Charges Usually we try to negotiate the order to consider the packaging, forwarding and transport charges to the suppliers account only. All the agreed charges are mentioned in the order and comparative statement separately to have clarity on the order value. In case the order is for ex-vendor works then transporter and charges details are specified separately in the purchase order. Delivery Schedule Delivery schedule is agreed mutually in the purchase order. Annual orders (Scheduling Agreements) or large quantity orders have different delivery schedule as per MRP on month-to-month basis, as per the quantity required by plants. Vendors are told beforehand in this regard, since too much inventory is not kept in the plant as this also lead to increase warehousing and inventory holding cost. Delivery Location Complete location address, excise code no., sales tax no., drug license of location are mentioned in the order. It is ensured that material unloading at locations is suppliers responsibility and that is allowed only on working days and within working hours.

 Delivery responsibility / Transit risk / Insurance coverage This is also ensured that material delivery responsibility with entire risk, till it is delivered at the respective manufacturing or required location is with the supplier only. Any material damaged during transit is not accepted even at the request of the supplier with an intention to rectify the same at companys location. Incase the materials are procured on ex-works basis, it is ensured with finance department that proper insurance is covered for the goods purchased. Quality acceptance or Rejections All materials received go for quality verification at the plant as per approved specification. Materials are accepted in the stocks only after approval. Payment to the material supplied is counted from the date of receipt of material in to the stores. Materials are then tested at the Quality Control or concerned department, and incase of any deviation the purchase department informs the vendor within two days of the completion of QC testing. All rejected materials are returned to the party within 7 days from the date of rejection. Suppliers are informed to collect the material within the stipulated time. Entire transit risk for the rejected materials is with the supplier only. It may also happen that material is rejected during usage at production line, then the vendor is informed immediately, requesting his presence to look into the matter and to solve the problem. Incase once approved material is rejected and found to be not fit for use, the same is returned back to the supplier with the necessary penalty considering the production loss. Payment Terms, Advance Payments, Cash discounts Advance payments are limited to the materials which are made customized for DRL, or where there is only one supplier for that particular material. Any advance payment is issued against to the bank guarantee from the supplier. There can be exception incase the value of material is very small or due to supplier relationship. All bank guarantees are handed over to finance department along with the requisition raising for advance payments. Sometimes early payments are given to the supplier if it is giving cash discounts. Warranty, Guarantee, After sales services, Inspection at suppliers place

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Guarantee is usually taken from the supplier for 12/18 months from the date of insulation or 16 months from the date of supply. Inspection has to be done at vendors place before the supplies are made.

CHAPTER 5
Learning / Recommendations Convergence of Sourcing, Supply Chain Visibility and Product Development Management
CONVERGENCE = RESPONSIVENESS

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STRATEGIC SOURCING

Strategic Sourcing begins by reviewing an entire organizations functions to determine how related functions should best be organized or eliminated to achieve the maximum benefit. This review highlights those tasks or functions that show potential for execution in a manner different from what is currently conducted. After this review, decisions can be made as to which methods or processes can be employed to achieve the maximum benefit. The key step in the Strategic Sourcing process is properly defining the organizations functions initially to optimize the use of tools to maintain or improve the level of performance or service at a reduced cost. This process is continual and results in various outcomes depending on how functions are defined. The main objective is minimizing costs, but strategic sourcing takes an enlightened view of the supplier-customer relationship.

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Five ways strategic sourcing is different: Total Cost, Not Just Purchase Price: From storage to repairs to disposal costs, there is more to a material than its quoted price. For example, a low-cost computer may be priced $300 less than its competition, but may cost more before the end of its life-period because of the cheap parts which require more repairs. Consolidating Purchasing Power: Every unit in the business should have a common and consolidated procurement source, otherwise the company would probably end up paying more for something it could have availed quantity discount. Strategic sourcing business lower the companys costs on everything from office supplies to temporary help. Tighter Supplier Relationships: By narrowing the number of suppliers used in the business, "partnering" in alliances and entering into mutually beneficial contracts, suppliers can work together with a strategic sourcing business to achieve standardization and improvements in cost, quality and time. Realigned Business Processes, Work And Information Flow: Strategic sourcing redesigns work and information flow to eliminate repetition and non-value-added work. Strategic sourcing can also help reduce the frequency of purchasing orders and inventory costs. Improved Teamwork And Purchasing Skills: Detailed information about products, markets and the buyers' and sellers' needs is essential to strategic sourcing. By creating cross-functional teams that can include suppliers, a business can overcome organizational barriers and inspire collaboration.

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Supply Chain Visibility

Supply Chain Visibility requires that the company collaborate with partners including suppliers, customers, and logistics carriers thereby improving demand and inventory visibility both within and outside the company. Whereas the lack of maximum product visibility within the company often stems from inadequate processes and systems, the lack of visibility outside the company borders is mainly due to lack of willingness to collaborate. The benefits of greater visibility in the supply chain are clear. Companies are able to reduce their dependence on excess safety stock, can reduce handling costs at the receiving end, and improve entry timing of entry in market. For example, if a manufacturer always knows exactly how much of a particular component or raw material is being delivered to processing plants by multiple suppliers, it will be able to reduce safety stock to cover for inaccuracies in inventory. A retailer, on the other hand, would have a better handle on which goods are running low on store shelves and in warehouses. Greater supply chain visibility would mean fewer out-of-stocks and, subsequently, more satisfied customers. For shippers and logistics companies, improved visibility will likely result in more efficient transport of goods and tracking of assets such as trucks.

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Product Development Management

With the increasing number of competitors and their products battling for market share and the ever more demanding nature of consumers, Product Development Management is a key factor in sustaining competitiveness. By getting to the market first, you can steal a lead of your competitors, and safeguard the long-term viability of your brands. And this can only be achieved through Strategic Supply Chain Management, greater visibility along the Supply Chain, and subsequently through it Product Development Management. Product Development Management helps in : how your company can develop and launch new products - in record time how to harness applied technology to create new products the best way to structure a company for innovation how to measure product life-cycles - and why how to develop an innovation culture how to carry out research - and when to ignore it how to build market share

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LIMITATIONS

Information obtained may be not sufficient. Information obtained may be biased and not up to date. Lack of reliable source of information. As most of the data is collected from Internet some of the websites are pay sites.

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CHAPTER 6
Bibliography

www.drreddys.com strategicsourcing.navy.mil.com cmgm.stanford.edu AMR Research, Inc. DRL Purchase Manual Supply Chain Management, by Sunil Chopra and Peter Meindel. Pharmaceutical Industry Primer 2001 PHARMA Industry Profile 2003

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